MESSAGE-MACRO

Assessing the economic impact of policies on energy costs, GDP, and energy demand 

MESSAGE-MACRO results from the linking of a detailed energy supply model (MESSAGE) with a macroeconomic model (MACRO)

The reason for linking the two models is to consistently reflect the influence of energy supply costs, as calculated by MESSAGE, in the mix of production factors considered in MACRO, and the effect of changes in energy demand on energy costs. The combined MESSAGE-MACRO model can  generate a consistent  economic response to changes in energy prices.

FAST FACTS

  • MESSAGE-MACRO is a linked model that reflects the influence of energy supply costs on the wider economy and vice versa.

  • The model's most important driving input variables are the projected growth rates of total labor.  

  • A key part of the dual model framework describes the interaction between macroeconomic production, energy demand and supply, and pollutant emissions.

  • MESSAGE-MACRO is a highly flexible model, as both constituent models are kept intact for independent runs, making further model development easier.

About MESSAGE-MACRO

The MESSAGE model describes the supply side of the energy system in great detail. However, the demand side in MESSAGE is exogenous (i.e., it does not respond to dynamics in the model). In the real world, this would be equivalent to oil prices doubling and no one realizing they should switch to more fuel-efficient vehicles. Hence the need for a link between MESSAGE and the macroeconomic model MACRO.

How MESSAGE-MACRO works

In practice, the MACRO model receives prices related to the total and marginal costs of energy supply from the MESSAGE model;  from these it supplies the quadratic demand functions for MACRO so that  the overall energy demand can be adjusted. MESSAGE is then rerun with these adjusted demands to give adjusted prices. This cycle is repeated until prices and energy demands stabilize.

MACRO internally defines an inter-temporal utility function for a single representative producer-consumer in each of the model’s world regions, which is maximized. The main variables in this module are production factors such as capital stock, available labor, and energy inputs, which together determine the total output of an economy.  The optimal quantities of the production factors are determined by their relative prices.

Energy demand curves are given in two categories, electric and non-electric energy, for all time periods. Actual demands are determined by MACRO in a way that is consistent with projected GDP. MACRO also disaggregates total production into macroeconomic investment, overall consumption, and energy costs.

Background

Originally, MACRO was the macroeconomic module of the top-down macroeconomic model MERGE (a Model for Evaluating the Regional and Global Effects of GHG Reduction Policies). Some modifications and extensions were made to MERGE at IIASA, where MACRO is now mainly used in connection with MESSAGE.

Challenges

Especially over the past three decades, there has been a rapid growth in the amount of energy used.  There is also evidence that some energy demand is being moderated by improved energy efficiency and improvements in energy quality, for instance, through the transition to a cleaner energy supply.

IIASA has continually expanded its energy modeling system to reflect the latest information, trends, and perspectives related to energy.  The MESSAGE-MICRO model allows scientists to keep policymakers up-to-date on the impacts of macroeconomic developments, including fluctuating energy demand, on the energy supply. 


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Last edited: 27 April 2017

CONTACT DETAILS

Volker Krey

Deputy Program Director

Energy

T +43(0) 2236 807 415

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MESSAGE

International Institute for Applied Systems Analysis (IIASA)
Schlossplatz 1, A-2361 Laxenburg, Austria
Phone: (+43 2236) 807 0 Fax:(+43 2236) 71 313